The Canadian Digital Dollar
if anyone would of thought that digital currencies were a fad that would soon disappear from the face of the earth, the recent interest from world governments should change their minds. Besides the uptick in the use and popularity of cryptocurrencies such as Bitcoin and Ether, the idea of countries having their own national tokens has taken root. While the idea has been discussed for years, it was Facebook’s announcement of their Libra token last year that really put things into motion.
Within months of the token’s whitepaper launch, China confirmed the development of the digital yuan, testing has begun for the digital euro and there is more pressure than ever for the United States to take serious steps towards a digital dollar. While the major world currencies are seemingly heading towards a virtual equivalent, other countries seem to be following suit. The Bahamas, the British Virgin Islands, and, of course, Canada is reported to be developing its own central bank digital currency. While the United States might grab the lions share of the headlines, its neighbor has admittedly made more progress towards the creation of a CBDC. So far, here is what we know about the digital Canadian dollar.
The first whiff of interest in a Canadian digital dollar currency was in October 2019 when news outlet The Logic reported that the Bank of Canada was looking into one. According to the report, the BoC was considering the challenges and implications of a CBDC. Besides this, it was reported that the BoC considered a CBDC as a possible solution to the threats that were posed by existing cryptocurrencies.
But what threats are those? The most common ‘threat’ suggested with regards to cryptocurrency is its use for crime and its undermining of the economic sovereignty of nations. These were the same criticism leveled against the Libra token so it is not unlikely that the Bank of Canada might share the same sentiment.
The report cited a document titled Central Bank Money: The Next Generation. The paper in question was presented to Governor of the Bank of Canada Stephen Poloz in September 2018. It was part of a two-year inquiry into the viability of a CBDC from the Bank of Canada. The intended token “would have all the benefits [of a central bank-backed asset] and all the convenience and security of wireless, electronic payments.”
Another cited benefit was that the Bank of Canada would be able to collect data on individual spending in a way that is impossible with fiat currency. This data would then be shared with governmental authorities such as the police and taxation agencies.
Bank of Canada Collaboration
As 2020 rolled about, no official word was given from the Bank of Canada about the development of the CBDC. However, it was confirmed that the bank had taken part in a collaboration with six other central banks. This was organized by the Bank for International Settlements (BIS) and included participation with the central banks of the United Kingdom, Japan, the European Union, Sweden, and Switzerland as well.
The collaboration was for the purpose of studying the use cases for CBDCs, with each bank sharing their information and use cases with one another.
“The group will assess CBDC use cases; economic, functional, and technical design choices, including cross-border interoperability; and the sharing of knowledge on emerging technologies. It will closely coordinate with the relevant institutions and forums – in particular, the Financial Stability Board and the Committee on Payments and Market Infrastructures (CPMI),” the official statement said.
The project will be co-chaired by the head of the BIS Innovation Hub Benoît Cœuré and Jon Cunliffe, a Deputy Governor of the Bank of England and chair of the Committee on Payments and Market Infrastructure. This goes to show that the possibilities of CBDCs is being looked into from all over the world and that multiple countries stand to gain should it be a success.
The attention being given to CBDCs is indicative of a larger issue, which is the emergence of a cashless society. In some ways, this was partially achieved through credit and debit cards as the use of paper money has been steadily declining for years. Digital currency now seems to be the next step in this evolution and while it started in niche internet corners, it cannot be ignored any longer. This sentiment was echoed by Bank of Canada Deputy Governor Tim Lane in February 2020 at FinTech RDV 2020 in Montreal. He stated that while a token is not necessarily in the works yet, a prototype is coming. The Bank of Canada also intends to consult with various stakeholders moving forward.
As for what would finally trigger the creation of CBDC, Lane said that the move towards a cashless society and the adoption of digital tokens could force an acceleration, especially if the Canadian dollar was threatened.
“If one or more alternative digital currencies threatened to become used widely as an alternative to the Canadian dollar, then a central bank-issued digital currency could be used to defend monetary sovereignty,” he said.
Inclusion and accessibility
The Bank of Canada has given some information into how they expect the CBDC to function and from all indications, it is expected to be inclusive and very accessible. A June 30, 2020 analytical note from the bank states that the token should have the accessibility of fiat currency. This means that it should be available to citizens in all parts of the country, even those without bank accounts, and should be usable by the disabled. Beyond this, it is expected that the token should be accessible even to those without smartphones and those in areas with poor network coverage and electricity.
The digital Canadian dollar is far from testing or an official launch but from all indications, is being considered by the Bank of Canada. As other countries roll out their own CBDCs, it is expected that the Bank of Canada will redouble their efforts in developing the token. When the Canada Central Bank Digital Currency launches, along with the efforts of other countries, it will be a major step towards a more financially innovative and inclusive world.
Image via Shutterstock, Writer Tokoni Uti